Econ 2010 McGraw Hill Chapter 8
In pure competition, the industry demand curve is infinitely price elastic.
False
In short-run equilibrium, a competitive firm cannot earn economic profits.
False
The break-even point means that the firm is realizing economic profits.
False
The demand curve faced by a purely competitive firm:
Is the same as its marginal revenue curve
A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:
It can sell all it wants to at the market price
Assume the price of a product sold by a purely competitive firm is $5. Given the data in the accompanying table, at what output level is total profit highest in the short run? Output | Total Cost 20 | $70 25 | 75 30 | 85 35 | 100 40 | 125 45 | 155 50 | 190
40
In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is:
Equal to the price
In the short run, fixed costs are irrelevant in determining a firm's optimal level of output.
True
A profit-maximizing firm in the short run will expand output:
As long as marginal revenue is greater than marginal cost
Which is a reason why there is no advertising by individual firms under pure competition?
Firms produce a homogeneous product
The total revenue of a purely competitive firm from 8 units of output is $48. Based on this information, total revenue for 9 units of output must be:
$54
Sam owns a firm that produces tomatoes in a purely competitive market. The firm's demand curve is:
A horizontal line
In a purely competitive industry, each firm:
Can easily enter or exit the industry
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:
Continue producing 1,000 units
In pure competition, price is determined where the industry:
Demand and supply curves intersect
Price is constant or "given" to the individual firm selling in a purely competitive market because:
Each seller supplies a negligible fraction of total demand and supply
In pure competition, the demand for the product of a single firm is perfectly:
Elastic because many other firms produce the same product
Competitive firms are price takers largely because of intensive advertising by their competitors.
False
If MR > MC for a competitive firm, it should reduce its level of output in order to make MR equal to MC.
False
If there are many firms in an industry, then it must be a purely competitive market.
False
Which is not a basic market model?
Free enterprise
Which is not a required characteristic of a purely competitive industry?
Industry demand is highly elastic
Which is necessarily true for a purely competitive firm in short-run equilibrium?
Marginal revenue less marginal cost equals zero
The fast-food restaurant industry would be an example of which market model?
Monopolistic competition
Which is true under conditions of pure competition?
No single firm can influence the market price by changing its output
Mutual interdependence would tend to limit control over price in which market model?
Oligopoly
Which characteristic would best be associated with pure competition?
Price takers
Which idea is inconsistent with pure competition?
Product differentiation
Which is a feature of a purely competitive market?
Products are standardized or homogeneous
If a firm has at least some control over the price of its product, then the firm cannot be in which market model:
Pure competition
The production of agricultural products such as wheat or corn would best be described by which market model?
Pure competition
Under which market model are the conditions of entry into the market easiest?
Pure competition
In which market model would there be a unique product for which there are no close substitutes?
Pure monopoly
Which market model assumes the least number of firms in an industry?
Pure monopoly
T-Shirt Enterprises is selling in a purely competitive market. It is producing 3000 units, selling them for $2.00 each. At this level of output, the average total cost is 2.50 and the average variable cost is $2.20. Based on these data, the firm should:
Shut down in the short run
A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC. It can be concluded that:
The firm is realizing an economic profit
For a purely competitive firm, the demand curve facing it is the same as its marginal revenue curve.
True
In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is:
Upward-sloping